The True Impact of the Internet on Holiday Rental Property Management

“Every act of creation is the first act of destruction “ – Pablo Picasso

As the balance of control and profits in the short-term holiday rental market continues to change for the players in this market: the owners, property managers, internet marketing channels and the clients, the response we make as property managers to the changing approaches will determine our longevity in this industry. The question is who really benefits in the end or are we just in a race to the bottom?

The internet has reshaped the holiday property management industry as it has done to nearly every other industry in Australia not sparing real estate sales. It has created a change of paradigm, with profits being distributed to more players wanting a piece of the holiday rental pie. The wealth potential and the vast number of people holidaying in self-contained holiday homes have attracted some big players. The Fairfax Group recently acquired Rentahome and Takeabreak (this follows their purchase of Stayz in 2005), and the US holiday rental group, Homeaway, bought www.realholidays.com.au in April last year.

Up until about the year 2000, holiday property managers called the shots. They were traditional businesses that managed owners’ properties – they took on all the responsibilities of renting the properties and they had control over the conditions under which renters stayed including cleaning, repairs, payments and profits. They provided the complete service.

Then along came the internet.

At an embryonic stage in the early years of this century, Ozstays joined other new distribution channels in the industry seizing an opportunity. It developed a new web process to empower property owners. The rental property paradigm began to change – a new process began to evolve.

Ozstays empowered property owners to change the way their holiday house was managed. No longer were owners bound by the usual ways of managing holiday rental property. Some, disenchanted with the traditional property manager, leapt at this new opportunity and went their own way. Ozstayz gave owners a way to self manage and put the commissions back into their own pockets and return a greater profit for their holiday investment property and many discounted the rate that the existing manager was charging to compete. They found locals to clean their property for incoming guests. A new rental management process was born, and it appealed to the holiday maker because it was cheaper – sometimes much cheaper than market price – and it allowed renters to deal directly with the owners.

There were some downsides: service level to the holiday-going client in many instances was decreased and, often there was no local office or assistance. But some properties ended up being marketed by owners at half the price advertised by the property management company. The holiday maker was the winner in this situation. As time went on and owners grew in confidence, some told their property managers to decrease charges or they would take back rental control of their own properties. To compete and keep their owners, many property managers dropped their pricing to keep their clients and some margin of profit. Again, control and profits were shifting.

As Ozstays attracted more and more owners, it became stronger and more owners used it. The process created an upward spiral of control over the market, not just over individual properties. Ozstays expanded and became Stayz. It wasn’t alone in this web-based approach: other similar marketing opportunities became available – Last Minute, WOTIF, Rent-a-Home, Takeabreak and local directories. The more owners that worked through an internet marketing site, the larger the site became, the greater the ranking in Google and so on… These new paradigms began outranking the traditional approaches, so then the traditional joined in and began listing on these new directories as well, thus contributing to the power and control of their competitors!

Top of the food chain
In the mid to late 90s, marketing was easy. $25 a quarter bought an advertisement in NRMA’s Open Road magazine. With the advent of internet, a website and, with some email marketing tools and a growing appreciation of SEO websites were generally what was required to be atop of the internet listings. Then along came Google and Google Adwords, and this allowed new players to spend their way to the head of the listings and then at the same time was the emergence of the Stayz, Last Minute. Wotif Take a Break and so on.

Ahead in the Game
The internet has brought about very significant change for the holiday rental property management industry right across Australia. In its initial years, it was seen as the savior, but in recent years and particularly in today’s current economic circumstances, the internet-based approaches have unsettled the status quo. It is not unusual to find holiday property management business that 10 years ago were charging in excess of 20% management fees now charging below 15% in response to the lower prices forced by the channels have pushed rental prices down. Property Management companies now have no choice other than to cut traditional costs and or find new streams of revenue; the old model is being buried and those not changing possibly may die with it.

Where’s all this leading? Does internet-based channel marketing and management spell the end for property managers? For some, the answer could be yes. For property managers who ignore the trends and current tools, the internet will have an impact on them similar to the impact a very large comet had on dinosaurs. And there are some property managers like this out there!

Given that new tools exist, it is amazing to hear and speak to businesses today that still operate using a calendar book and Fluorescent felt tip pens. I was dumbfounded in August 2010 when I went to a REINSW conference in Sydney where one of the keynote speakers spent about 10 minutes explaining how he colour-codes his keys! Yes, coloured envelopes with coloured key tags placed in an overnight safe for incoming guests. Just the management of keys for 50 properties would, over the course of a year, cost a holiday property management business a considerable amount. It’s now 2012 and better processes are available.

A Vision: The Future of Holiday Rental Property Management
The next dominant species of holiday property managers is evolving. They have a new philosophy on the whole business and pick up the majority of bookings through their own website but importantly with minimum human intervention; they will have a website that is strong organically and found easily through search engines.

They will use the latest Property Management System (PMS) software as is used throughout more forward markets such as in the USA. In these markets, gone are the days of booking button/Yesbookit type software’s and using channels as the mainstay of generating bookings. The software will have integrated trust accounting and marketing tools all in the complete package. The single PMS package will run the business removing the huge labour cost from the business operation.

For customers, it will be easy to book and pay on the website. In the future, there are no keys; all doors have digital locks, date and time-stamped door codes that are sent by SMS to client phones at check in time. The trust accounting component of the system will be so automated and integrated with the bookings and management system that the time spent each month managing the process will be hours, not days or weeks.

Maintenance personnel will be notified by SMS and email directly from the PMS. The maintenance person will close off jobs directly into the PMS with invoicing and outcomes. In the property management industry of tomorrow, the cost of staff may be an expensive luxury, so communications with and management of owners will also be managed by the PMS.

What is the future role of Stayz, Occupancy, WOTIF, Take a Break, Rentahome, Real holidays and all the other websites? It’s really up to how property management companies respond, we control their destiny. The more they rely on them, the stronger they become. They are the real competition as they continue to take a place in the organic listings in place of the established.

I am in regular contact with property management business around Australia, and the bottom line is that profits are being whittled away with so many factors and opposing paradigms effecting the business. Property managers are potential losers in this changing situation and it is time now to change, evolve and avoid extinction.

Guest Author: Glenn Smith is the CEO of GENKAN and of Thredbonet Marketing Pty Ltd.GENKAN is leading the way towards visionary property management and responsible for the driving of the companies three-property management business’s, Accommodation Thredbo is the largest holiday rental property manager in the snowy mountains, Port Douglas Reservations and Discover Niseko Japan.

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Hi Glenn, as the owner of a large holiday business as well as a traditional sales and management business I can say that the holiday and tourism sector is quite dynamic. There have been a lot of changes and to me it has always seemed a disorganized and “messy” industry on a number of levels, including technology.

I agree that management technology controlling the operations of the business and the advertising technology of the portals out there have come a long way, but I would also add that there appears to be a long way to go. It is still very disjointed and trying to pick who the winners might be is still hard to forecast.

Personally I think the “opaque” charges that occur from the main advertising portals are the most likely to change. The fact that you will pay more for a property booking direct through Stayz than you would if you logged out of there and booked direct with the managers website or call centre is not transparent for customers. Not sure what the ACCC would think about how much information the consumer is provided with in this regard?

Glenn you are pointing out that these charges are likely to end up on the managers doorstep, and the more powerful they get the higher those fees will be. The manager cannot absorb those costs. In the event that (for example) Stayz is providing a lot of bookings then the business owner could pass those charges on to the owner. If not then one would question whether they need to be in Stayz at all. I agree that it is not that simple.

Wotif is an interesting one. The major hotel groups had large directly employed sales-teams that would travel the country selling the business to government and corporates. Huge money was spent in call-centres cold-calling households and businesses to sell packages. These were real, and large, costs. Then Wotif came along and the major hotel groups were able to streamline their marketing costs by making their sales-team redundant and reducing or eliminating their direct and indirect marketing costs from call centres to press and TV advertising. I have had one industry insider tell me that Wofif was a blessing for their profits as they effectively outsourced a huge chunk of their marketing, and they were able to strip out a whole level of management that used to run this. On the record he will whinge about Wotif and say they charge too much, but I can assure you they are hollow comments!

The little motel didn’t have these costs, but now they have to be on Wotif and now 10% – 15% of each booking is kept by a website. These guys were impacted directly, as they didn’t have a line item for these costs before, and they had no owners to pass these costs onto.

Outside of a completely new paradigm for major industry change to actually work it still needs to benefit the majors and the majority. That means that the smaller operators can be seriously affected.

It will be interesting to see how this plays out. In the meantime we are pushing to Stayz and other portals, as well as having our own website.

Guy what concerns me, and this is not just holiday property management, this is what we have been banging on about all last week, its not just Stayz, Wotif, Homeaway, TakeAbreak etc.. it’s realestate.com.au Domain and every portal that is seeking a piece of the Real Estate industry pie.

And as we have seen over the years, these portals are slowly increasing their charges, just as they did in the USA, then once they owned the market, once they dominated the search results ( as they do now for many area’s on the eastern seaboard ) the price they charge you will increase to a point where something will break. Who is going to absorb the cost of 25% commission, the property manager or the owner ?

As a property management company president said to me in the USA at the VRMA conference, “once you have all the fish in the net, you control the price of fish”

If anyone thinks that the Fairfax group isn’t looking at increasing commissions well I think you better put yourself in the seat of the CEO of Fairfax media and what decisions he will make next time someone asks for higher revenues. They have already made moves of testing the water for 15% commission with the introduction of Flipkey into the equation and next time you receive another spam email from Flipkey, ask them what they charge commission wise in the USA.

We only have ourselves to blame, I re-iterate it again, every time we list a property on the portal it makes them stronger and you weaker. Its just a matter of understanding SEO dynamics.

Thanks Glenn, see my article on the VRMA conference in Orlando last year at http://www.genkan.com.au/genkan/Article the article posted today is actually the cart before the horse and written long before this one.

Another area that I see will further change the face of the holiday letting business is the group discount sites like cudo, spreets, groupon, coupon etc.

I ran a campaign on cudo last month and it produced 150 bookings inside 48 hrs for properties that during the summer months have a very poor occupancy levels. These companies only get paid for results as well which I like, no upfront investment on my part.

Hopefully these group discount sites will start to look at B2B sales as well and start generating leads for property management, investment sales leads etc

It’s only a matter of time.

Cudo has an email database of over 800,000 opt in clients and will market your offering to its database without an upfront charge; it was a no brainer for me and it works.

When I was last in Europe in 2007, we did all our accommodation booking through Expedia or Wotiff. We were travelling on a fairly loose agenda where we would go to a hotel front desk, say the Gorman at Tower hill, and ask for a price for a room for two nights. They would give a price and then we would go to expedia and get it sometime for as low as half price.

In Australia however, it seems to work the opposite. I check out the internet price then go to the hotels booking number and get it cheaper.

But by making that offer to CUDO did you achieve something you couldn’t have done yourself or did you just create another competitor ? I find in low season its marginal business at the best of times, the owners make very little and complain about the low income, another hand in the pockets and its right out the door.

In the US, Groupon takes 40%, now how can you make money from that ? I had Jetstar call me several weeks ago wanting to list our properties, they wanted 10%.

Hi Glenn, I don’t disagree with any of your points, but just like the sales agent vs REA/domain debate I am just keeping a watching brief and waiting until it appears that “something will break” as you put it.

We have about 50% of the southern Port Stephens market, and if (for example) Stayz tried to pressure our owners for higher fees it would affect me and my competition, which is only another 2 or 3 agencies. It is unlikely that they would be able to make any different response to a massive fee increase than I could, so we could quite easily just pull all of our properties off Stayz and they would go from say 1,000 quality listings to 50 dog-boxes overnight.

I understand that you are saying we should do that now, but at the moment we are getting some more bookings from Stayz that we might not have otherwise got, as people choose Port Stephens over Coffs Harbour or Port Macquarie or whatever. It isn’t a huge amount, but it is measurable.

So at the moment it is cost effective for us, a benefit to our owners and if Stayz are making a quid it is a win all around.

I totally get where you are coming from, and I understand that I am one of those agents only feeding these guys what they need to get powerful enough to start stomping on people. But I think we are a while behind what is happening in the USA and I am prepared to have a wait and see approach in the meantime.

The broader issue here is how disjointed and disorganized the tourism industry is at a federal level, state level, regional level and destination level. There are a lot of things broken in the tourism industry, and I think it is a brave market for anyone, including the portals, to play in.

Hi Guy, oh how true regarding the Governments, I just got off the phone to one of our Genkan users on Stradbroke Island. Straddie has lost the sand mining industry so the state governement is trying to appease the locals and their current idea is to throw a bucket of $$ at WOTIF ( cannot believe this ) to enable the local operators to use the bucket of $ to assist with tourism. Great Mr Government, grow the corporate !

On a Federal Level its far worse, I wrote some letters last year to Minister for Tourism, Martin Ferguson. My theory was and still is that if Australian Tourism is down 30% well then the Australian Government is funding the downturn. That is the majority of most holiday homes are negatively geared, SO if we have a 30% downturn they fund that through negative gearing. The letters and the amazing response from OUR Minister of Tourism is at http://www.genkan.com.au/holidayathome/default.htm

Only a meeting with Joe Hockey could upstage Martin Ferguson, spend 30 minutes trying to explain the mechanism of negative gearing with him !

I agree Glenn but unless the tourism industry unites to form the strength of, for recent example, the car manufacturing industry the various levels of governments will only spend a limited amount of time and resources on it.

There are not really any votes in it, and the tourism industry spends so much time bagging each other out (Sydney vs Melbourne for one example) I can understand why they would rather just stand back from the whole mess. There are more votes in “tourists” arriving unofficially by boat and there are more votes in keeping grandma addicted to pokies than there is in our neck of the woods. Careful we don’t let Bob Brown know that people fly and drive to our holiday destinations. Holiday Carbon Tax anyone?

As to Mr Ferguson’s response I am actually impressed he actually wrote back to you. The front page of today’s Financial Review has a lead story titled “Stop Whining About Tourism”. Well worth grabbing a copy for an interesting read.

Hello Guy, what a great article to begin your journey on Business2.com.au, I think your ideas on what happen next are brilliant, I think the current batch of sites are in their very early stages and would love to see some movement here technology wise.

Peter I think the best guidance is what happened in the USA, I am normally not a great advocate of “flakey” Uncle Sam but what I saw/heard really opened my eyes. There is now a huge divide over there between the property managers and the property owners who decided to stay doing it themselves.

When the high portal commissions hit 12-18 months ago some property managers ( VRMA’s ) went to the wall, many owners at the demise of their property manager decided to join what is now known as VRBO ( Vacation Rentals by Owner ) Homeaway seemingly threw their weight behind the owners group. This is interesting mainly because of where Stayz is today. Homeaway then purchased a PMS software vendor or two to provide this functionality to the VRBO’s, make them more professional

It very much felt as if right from the beginning Homeaway had it in the VRM’s and saw an opportunity to build owners direct because they can wear the 25% commission now that there is no property manager. The two groups at 25% don’t survive in either property manager or sales.

Sadly here in NSW the NSWREI decided at its last yearly meet for Holiday Rental Managers to give 33% of presentations to the Fairfax Group allowing them to promote their methodology to REINSW members. Needless to say my letters to REINSW were full of venom.

Thank you for a very informative and interesting article. I run a small holiday home website listing rentals in Cairns. We get our home owner clients more bookings than the large outfits like Stayz and we are managing well enough in a very tough period for domestic tourism. However, I think your warning is well said that the more property managers rely on the large listers like Stayz, the stronger and hungrier those large operations will become.
However, I also feel that there is an opportunity here for small regional operations who specialize in one thing, such as holiday homes, to capitalize on the weaknesses of the big operators. For example, Stayz is now so bloated with listings that under Cairns Beaches, for example, only around 43 out of 107 are actually holiday homes. Several of those are from Port Douglas, Mission Beach, Bramston Beach, Newell Beach and Wonga Beach. The rest are apartments. If I was looking for a holiday house in Cairns, why would I want to wade through all that? In addition, if I come up with a list of 6 that I like the sound of, I may then have to contact each owner unless several are managed by the same property manager. There is no central point to phone on Stayz or any other large site. They don’t actually have any knowledge of their listings other than by way of the content supplied by the property owner or manager. In effect, the property owner pays the listing website to supply it with content!
In contrast, we are available at least 12 hours a day, 7 days a week to respond to phone calls. If a desired home is already booked, we can suggest others and we can answer any number of questions because we know all the properties on our site very well. Of course, it is essential to be in the first half dozen or so organic listings but we have been able to do that for most of the obvious keywords for our market.
I don’t think it is well enough appreciated how important the local aspect is to Google search. Those home owners listing Port Douglas homes under a Cairns listing are missing the point. Relevancy and accuracy will be what makes search engines work well for both Google and the searcher. All of our homes have their exact suburb next to their street name and mentioned several times on the basis that many people do indeed want to stay in specific places – usually because their friends or relatives are in that suburb. Describing a home as being in Cairns is only marginally helpful.
We are getting to the point where we will need the sort of software which your group has developed to cut back on our workload. However, as far as software replacing the direct person to person contact – I don’t think so and therein is our competitive advantage. It may well be that hotels and resort apartments can go the automated self-booking route but that is because hotels and apartments are so homogenous that they don’t require much explaining. Holiday homes are idiosyncratic and can vary from a beachside shack to a hilltop mansion and naturally generate more questions. As your excellent report on the VRMA conference pointed out, we are in the business of “Magical Moments” and I think that begins with the first point of contact – the booking process.

Nick, I’m with you. As a regular consumer of holiday rental accommodation, my family appreciates the value of a good property manager. Sure, the internet is a powerful marketing tool and PMS software may help to minimise administrative inefficiencies but a decent property management service requires a lot more than that. I feel that some property managers are over-relying on the “automation” of their business and losing sight of the fact that property management is still a “service” – that they still need the work ethic and social skills to communicate appropriately with real customers and real clients / owners.
By way of example, last February we booked online some accommodation for a week in late September in the Snowy Mountains. When we contacted the operator in June about changing the starting date we began to lose confidence in the operator. When my wife finally got hold of the operator by phone (at about 6:45pm one evening), the first thing he did was complain about being called so late in the day. During a rather unpleasant conversation he did eventually agree verbally to alter the starting date but an e-mail from us asking him to confirm the change went unanswered for a few days. So another phone call was required, but this time he complained that he didn’t have time to deal with it because he was about to “catch a flight to Greece”. My wife and I then decided to immediately cancel, agreeing to forfeit a percentage of our deposit. We didn’t want to risk ruining our “Magical Moments” in the snow if we had to contact this person during our stay if, for example, the electronic key system or the hot water system was broken. This guy was in Sydney, “managing” properties in the Snowy Mountains! It gets worse. We sent our cancellation in writing both by e-mail AND by post (because we did not trust him). But believe it or not, he denies receiving both forms of communication (even though he acknowledged receipt of every other e-mail we sent to him and he received our earlier deposit cheque in the post). He refuses to refund any part of the deposit. We are taking action to recover what is owed to us, but my point is that we would not have cancelled in the first place if it wasn’t for the lack of basic customer service. I feel sorry for the property owners who are presumably paying for a property management service but are actually only getting a booking service.
Needless to say, we will never book accommodation online again without first speaking to the manager or owner.
I thought the author’s Picasso quote at the start of this article was very appropriate – the “creation” of the internet was the first “act of the destruction” of basic customer service in so many industries.
Good luck with your business.

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